For many years, Gordon Brown used the private finance initiative to conceal how much public money he was ploughing into the infrastructure. What an irony, then, that the unravelling of George Osborne's overhauled PFI is now disguising the true depths that public investment has plunged to.

Before the crunch, the route to economic respectability was to rein in public spending. Chancellor Brown latched enthusiastically on to PFI – a means of getting private companies to invest on behalf of the government, which his Conservative predecessors had devised. It reconciled his ambitions to appear progressive to his party and prudent to the markets. The arm's-length borrowing was frequently on outrageous terms, but the hospitals got built without scoring as public capital outlays.

In today's slump, economic respectability requires more proactive pursuit of growth. The IMF is only the latest establishment voice to call on Mr Osborne to do not less but more capital spending, and he has moved modestly in that direction – making much of setting aside an annual £3bn for net public investment in his budget this year. Sadly, however – as we report – this money may achieve nothing more than substituting for vanishing private finance.

Despite making cogent criticisms of PFI in opposition, as chancellor Mr Osborne has been as keen as his predecessor to have somebody else do his borrowing. His difficulty, in the wake of the credit crunch and the stiffer Basel III capital requirements, is that the banks that used to provide the funds are now reluctant to lend out for the 20- or 30-year terms that infrastructure requires. Mr Osborne responded by devising "PF2", the half-hearted rebrand being less significant than the shift towards (costlier) equity finance, and the reassurance to investors that the state would shoulder more of the risk. While costlier capital for less transference of risk sounds like a worse deal for taxpayers, the sweetened deal for investors was supposed to lure in the likes of pension funds. The sweeteners, however, are not sweet enough, and planned PF2 investments in schools and military accommodation are now falling back on public funds, as – after a separate public-private partnership failed to come off – is the finance for Crossrail trains.

From a narrow value-for-money point of view, a return to straightforward public finance is welcome, but – in an economy crying out for stimulus – scarce funds for investment are being used to substitute for faltering PFIs. The total of publicly sponsored investment is thus lower than it otherwise would be. With net capital spending having been halved since 2010, Mr Osborne's age of austerity was never likely to be a golden age of infrastructure. But with PF2 faltering, there is now even less investment than there appeared.